Research into IT expenditure recently published by CEB has provided some interesting and potentially worrying insights for CIOs. The finding that has grabbed all the headlines is that technology spending by non-IT functions adds another 40% to the official IT budget. Put another way, this means that CIOs control just over 70% of the total IT spend within their organisations.
Now, it could be argued that it does not matter who holds the budget for IT expenditure. Certainly if you asked the CFO they would be more concerned with the return on investment on any IT spend and whether it has been budgeted for than whose budget it actually sits within. There is after all only one bottom line. And why shouldn’t the relevant line of business executive be required to justify IT expenditure in their area instead of it falling to the CIO to include in their budget and seek approval?
What is more important is the role the CIO plays in deciding when and how the organisation’s total IT budget is spent. And this is where the CEB research does reveal something that CIOs should be worrying about; when asked how much they thought other functions spent on IT, CIOs estimated it to be an additional 20%. So, assuming CIOs are involved in the 20% they estimated – and that’s not a given – then there is another 20% in which they have no involvement whatsoever. Even worse, they are not even aware of this spend. In other words the organisation’s technology leader is not involved in, or even aware of, at least 14% of its technology spend. And the chances are, it could be higher.
Another worrying statistic from the CEB study is that half of the technology expenditure by non-IT functions is spent on trialling new technologies, products and services. That means that other areas of the organisation are spending 20% of the total IT budget on innovation whilst, according to the CEB, the CIO can only spend a maximum of 10% of the budget under their control on these new areas. So other business functions are spending twice as much as the IT function on using technology to create value for the organisation. Perhaps this goes some way to explaining the headlines about CIOs being bypassed in the digital age; they do not have the budget for innovation and do not appear to be aware of what the rest of the organisation is doing either.
The fact so much expenditure on technology is happening outside of the IT function and without their involvement or knowledge has to be worrying for CIOs. However, it is not necessarily all bad news. As stated above, it should not really matter to the CIO who holds the budget for IT expenditure as long as they are involved in the key decisions, shaping the organisation’s thinking and leading the overall direction of how technology is being used. They certainly have the technical knowledge and the unique, end-to-end perspective of the business to play this role. But it would appear they are not in a position to influence or contribute to technology decision in many cases. And clearly some areas of the organisation do not even see the need to consult the CIO when making technology decisions.
Does this imply the CIO has a credibility issue that means their peers do not see the value of working with them? Or does it just mean they are not sufficiently engaged with the rest of the organisation and so are easy to bypass, deliberately or otherwise. Certainly it is a lot easier to bypass someone if they are not in front of you on a regular basis. If it is a credibility issue then the CIO has a big task ahead of them to establish themselves as a credible partner that can contribute to more than just keeping the existing infrastructure and applications running. They need to be able to demonstrate that they understand the business and can apply technology to drive innovation in products and services, and to enhance the customer experience.
What is certain is that other IT functions will continue to increase what they spend on technology as businesses continue to exploit the digital revolution. And, as this trend continues, the proportion of the organisation’s total IT spend that bypasses the CIO altogether is also likely to increase unless CIOs can address the issues that are causing them to be left out of the loop.
Whatever the problem, the solution starts with engagement. After all, CIOs cannot establish credibility with, or influence, other functions if they are not even engaged with them. CIOs therefore really have to get out into the business and beyond, more than they do. They need to spend an increasing amount of time outside of the IT function engaging with their key stakeholders within the organisation and with its customers, partners and vendors.
This regular engagement will put the CIO front-of-mind when their peers have opportunities or challenges they need to address. It also enables CIOs to identify common themes, overlaps and dependencies across the business that may otherwise not be spotted. And it will give them insights into customer behaviour and needs that could be exploited through technology.
Getting out more will give CIOs an increased say in how the total technology budget is spent. And whilst they may not hold the budget for that expenditure they will be using their influence to set the overall direction of the organisation’s investment in IT. If they do this successfully they can, in effect, achieve a virtual increase in their budget of up to 40%; not a bad return on their investment in building relationships with their peers across the rest of the organisation.